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Earlier this week, Rajya Sabha passed the Airports Economic Regulatory Authority of India (Amendment) Bill, 2019, and the Bill is now pending in Lok Sabha. The Bill amends the Airports Economic Regulatory Authority of India Act, 2008. The Act established the Airports Economic Regulatory Authority of India (AERA). AERA regulates tariffs and other charges for aeronautical services provided at civilian airports with annual traffic above 15 lakh passengers. It also monitors the performance standard of services across these airports. In this post, we explain the amendments that the Bill seeks to bring in and some of the issues around the functioning of the regulator.
Why was AERA created, and what is its role?
Few years back, private players started operating civilian airports. Typically, airports run the risk of becoming a monopoly because cities usually have one civilian airport which controls all aeronautical services in that area. To ensure that private airport operators do not misuse their monopoly, the need for an independent tariff regulator in the airport sector was felt. Consequently, the Airports Economic Regulatory Authority of India Act, 2008 (AERA Act) was passed which set up AERA.
AERA regulates tariffs and other charges (development fee and passenger service fee) for aeronautical services (air traffic management, landing and parking of aircraft, ground handling services) at major airports. Major airports include civilian airports with annual traffic above 15 lakh passengers. In 2018-19, there were 32 such airports (see Table 1). As of June 2019, 27 of these are being regulated by AERA (AERA also regulates tariffs at the Kannur airport which was used by 89,127 passengers in 2018-19). For the remaining airports, tariffs are determined by the Airports Authority of India (AAI), which is a body under the Ministry of Civil Aviation that also operates airports.
What changes are being proposed in the Bill?
The Bill seeks to do two things:
Definition of major airports: Currently, the AERA Act defines a major airport as one with annual passenger traffic over 15 lakh, or any other airports as notified by the central government. The Bill increases the threshold of annual passenger traffic for major airports to over 35 lakh.
Tariff determination by AERA: Under the Act, AERA is responsible for determining the: (i) tariff for aeronautical services every five years, (ii) development fees, and (iii) passengers service fee. It can also amend the tariffs in the interim period. The Bill adds that AERA will not determine: (i) tariff, (ii) tariff structures, or (iii) development fees, in certain cases. These cases include those where such tariff amounts were a part of the bid document on the basis of which the airport operations were awarded. AERA will be consulted (by the concessioning authority, the Ministry of Civil Aviation) before incorporating such tariffs in the bid document, and such tariffs must be notified.
Why is the Act getting amended?
The Statement of Objects and Reasons of the Bill states that the exponential growth of the sector has put tremendous pressure on AERA, while its resources are limited. Therefore, if too many airports come under the purview of AERA, it will not be able to perform its functions efficiently. If the challenge for AERA is availability of limited resources, the question is whether this problem may be resolved by reducing its jurisdiction (as the Bill is doing), or by improving its capacity.
Will the proposed amendments strengthen the role of the regulator?
When AERA was created in 2008, there were 11 airports with annual passenger traffic over 15 lakh. With increase in passenger traffic across airports, currently 32 airports are above this threshold. The Bill increases the threshold of annual passenger traffic for major airports to over 35 lakh. With this increase in threshold, 16 airports will be regulated by AERA. It may be argued that instead of strengthening the role of the regulator, its purview is being reduced.
Before AERA was set up, the Airports Authority of India (AAI) fixed the aeronautical charges for the airports under its control and prescribed performance standards for all airports and monitored them. Various committees had noted that AAI performed the role of airport operator as well as the regulator, which resulted in conflict of interest. Further, there was a natural monopoly in airports and air traffic control. In order to regulate the growing competition in the airline industry, and to provide a level playing field among different categories of airports, AERA was set up. During the deliberations of the Standing Committee examining the AERA Bill, 2007, the Ministry of Civil Aviation had noted that AERA should regulate tariff and monitor performance standards only at major airports. Depending upon future developments in the sector, other functions could be subsequently assigned to the regulator.
How would the Bill affect the regulatory regime?
Currently, there are 32 major airports (annual traffic above 15 lakh), and AERA regulates tariffs at 27 of these. As per the Bill, AERA will regulate 16 major airports (annual traffic above 35 lakh). The remaining 16 airports will be regulated by AAI. Till 2030-31, air traffic in the country is expected to grow at an average annual rate of 10-11%. This implies that in a few years, the traffic at the other 16 airports will increase to over 35 lakh and they will again fall under the purview of AERA. This may lead to constant changes in the regulatory regime at these airports. The table below provides the current list of major airports:
Table 1: List of major airports in India (as on March 2019)
| Airports with annual traffic above 35 lakh | Airports with annual traffic between 15 and 35 lakh | ||||
|
Ahmedabad |
Goa |
Mumbai |
Amritsar |
Madurai* |
Srinagar |
|
Bengaluru |
Guwahati |
Patna |
Bagdogra |
Mangalore |
Trichy* |
|
Bhubaneswar |
Hyderabad |
Pune |
Calicut |
Nagpur |
Varanasi |
|
Chennai |
Jaipur |
Thiruvananthapuram |
Chandigarh |
Port Blair* |
Vishakhapatnam |
|
Cochin |
Kolkata |
Coimbatore |
Raipur* |
||
|
Delhi |
Lucknow |
Indore |
Ranchi* |
||
* - AERA does not regulate tariffs at these airports currently.
Sources: AAI Traffic News; AERA website; PRS.
Authored by Vishnu Padmanabhan and Priya Soman The Budget speech may have already been scrutinised and the numbers analysed but the Budget process is far from complete. The Constitution requires expenditure from the government’s Consolidated Fund of India to be approved by the Lok Sabha (the Rajya Sabha does not vote, but can suggest changes). After the Finance Minister presents the Union Budget, Parliament holds a general discussion followed by a detailed discussion and vote on Demands for Grants. In the general discussion, the House discusses the Budget as a whole but no motions can be moved and no voting takes place. In the 15th Lok Sabha, the average time spent during the Budget Session on general discussion has been 13 hours 20 minutes so far. Following the general discussion, Parliament breaks for recess while Demands for Grants – the projected expenditure by different ministries - are examined by the relevant Standing Committees of Parliament. This year Parliament is scheduled to break for a month from March 22nd to April 22nd. After the break, the Standing Committees table their reports; the grants are discussed in detail and voted on. Last year, the total time spent on the Union Budget, on both general and detailed discussion was around 32 hours (or 18% of total time in the session), largely in line with the average time spent over the last 10 years (33 hours, 20% of total time). A unique feature of Indian democracy is the separate presentation and discussion for the Railway Budget. Including the Railway Budget the overall time spent on budget discussion last year was around 55 hours (30% of total time in the session).
Note: All data from Budget sessions; data from 2004 and 2009 include interim budget sessions. Source: Lok Sabha Resume of Work, PRS
During the detailed discussion, MPs can call for ‘cut motions’ to reduce the amounts of demands for grants made by a Ministry. This motion can be tabled in three ways: (i) ‘the amount of the demand be reduced to Re.1/’ signifying disapproval of the policies of that ministry; (ii) ‘the amount of the demand be reduced by a specified amount’, an economy cut signifying a disapproval of the amount spent by the ministry and (iii) ‘the amount of the demand be reduced by Rs.100/-', a token cut airing a specific grievance within the policy of the government. However in practice almost all demands for grants are clubbed and voted together (a process called guillotining). In 2012, 92% of demands for grants were guillotined. The grants for Ministries of Commerce and Industry, Health and Family Welfare, Home Affairs and Urban Development were the only grants taken up for discussion. Over the last 10 years, 85% of demands for grants have been voted for without discussion. The most frequently discussed demand for grants come from the Ministry of Home Affairs (discussed in 6 of the last 10 sessions) and the Ministry of Rural Development (5 times). Demand for grants for Defence, the largest spending Ministry, has only been voted after discussion once in the last 10 years.
Source: Lok Sabha Resume of Work, Union Budget documents, PRS
If the government needs to spend any additional money, it can introduce Supplementary Demands for Grants during the year. However if after the financial year government spending on a service exceeds the amount granted, then an Excess Demand for Grant has to be introduced and passed in the following year. The Budget process concludes with the introduction and passage of the Appropriation Bill authorising the government to spend money from the Consolidated Fund of India. In addition, a Finance Bill, containing the taxation proposals of the government is considered and passed by the Lok Sabha after the Demands for Grants have been voted upon.
